[Click e-Stock] "TKG Huchems Expected to See Upgraded Earnings on Global Production Disruptions in Second Half"

On July 22, Yuanta Securities stated that TKG Huchems is expected to see an upward revision in its earnings due to global production disruptions, including at Covestro in Germany, which will act as a positive catalyst in the second half of the year. The firm maintained a 'Buy' investment rating and set a target price of 25,000 won.

Hwang Kyuwon, a researcher at Yuanta Securities, said, "We have raised our 2025 operating profit estimate for TKG Huchems from 60.9 billion won to 65 billion won." He explained, "Although operating profit is expected to decrease for two consecutive years, from 121.2 billion won in 2023 and 80.8 billion won in 2024, the market situation for DNT (soft polyurethane raw material for synthetic leather), one of the company's main products along with MNB (rigid polyurethane raw material for LNG insulation), has suddenly improved starting this month." Revenue is projected to reach 1.1 trillion won.

He noted, "This month, Covestro, the world's second-largest TDI producer, halted operations at its 300,000-ton facility due to a transformer fire." He added, "Production disruptions in Europe are having a positive impact on TDI producers in Asia." The TDI spread in China rebounded sharply from $962 in the second quarter to $1,540 in July. He projected that if the TDI spread in Asia exceeds $1,600, TKG Huchems' DNT operating margin could rise to 10% (currently below 6%), and sales volume is also expected to increase.

In the past, production disruptions at large global facilities have also led to improved earnings. Hwang emphasized, "When BASF's 300,000-ton TDI facility in Germany exploded in 2016, Huchems' operating profit increased by 75.7 billion won, and during the production disruptions at BASF and Covestro caused by the Ukraine war in 2022, operating profit rose by 23.7 billion won." He stressed that a similar effect is highly likely to be repeated in the second half of this year.